The present hike in the oil prices and for that matter any increase and adjustment in the prices of petroleum products, invariably has come under harsh criticism on the ground that it would set into motion another round of price spiral in the country putting extra burden on the masses and making their lives even more miserable than before, contrary to the pledges of the government to improve their economic situation. The arguments of the critics of the current policy of pricing of oil products by the government are not without substance as far as the immediate impact on the lives of the people is concerned.

According a research report, in Pakistan, 48 percent of the petroleum products are consumed by the transport sector followed by 36 percent by power generation units and 12 percent by the industrial sector while the remaining is shared by the domestic consumers. Any upward adjustment in the prices of the petroleum products is bound to affect major chunk of the population. With the raise in the oil prices the fares and freight charges for moving goods from one place to another place go up and consequently lead to a hike in the prices of all those goods and products. Ultimately it is the end consumers i.e the masses who have to bear this burden and the resultant increase in the inflation also unleashes negative impact on the economy.    

This view, however, represents only one side of the coin and completely disregards the economic compulsions and the ground realities that dictate enhancement in the prices of petroleum products and the likely adverse impact on the economy in the long run in case of remaining oblivious to these necessity driven changes on political grounds or for other reasons. Pakistan is not self-sufficient in its energy needs. Presently gas produced within the country is fulfilling 50 percent energy needs of the country. However, the growing energy needs and dwindling indigenous gas resources have forced Pakistan to import gas from other countries and opt for trans-regional projects like IP and TAPI gas pipeline. Oil imports are 40 percent of the total imports of Pakistan and constitute a big drain on our foreign exchange reserves. Since 36 percent of the imported oil is used for power generation, a vital ingredient for industrial development and a sustained development process, Pakistan perforce has to import oil. Unfortunately, Pakistan has no control over the international oil prices which continue on the upward curve due to a variety of reasons and developments occurring on the global level which have a direct bearing on them. During July, the oil prices went up due to the Middle East situation and there was also depreciation of 2.5 percent in the Pak rupee against US dollars, the factors which are behind the current hike in the prices of the petroleum products.

The present government has rightly deregulated the prices of the petroleum products authorising the Oil marketing Companies and Refineries to link the price of the petroleum products with the actual international market import prices, and in case no imports are made, to determine the prices as per Import Parity Pricing Formula based on monthly average international market prices. The adoption of this policy is absolutely essential to prevent the re-emergence of the circular debt which precipitated the energy crisis in the country badly affecting the industrial sector and the domestic consumers.

The government needs resources to tide over the prevailing energy crisis as well as to install new power producing units to meet burgeoning energy needs in the future and ensure energy security for the country. However, it is wrong to say that the government is completely unmindful of the difficulties of the consumers. To lessen the impact of the present price hike, the government reduced its tax petroleum levy on HSD from Rs.3.57 to Rs.2.50 during July and similarly it has again reduced it by Rs.1.50 since 1-8-2013. It is pertinent to note that these reductions have brought the petroleum levy to a much lesser level than the actual budgeted rates, which would cost the Rs.2.8 billion per month to the government. In other words the consumers still enjoy a monthly subsidy of Rs.2.8 billion. If we really want to tackle the energy crisis and seek energy security in the future, we will have to adopt a rational approach. The choice is between an engineered short term relief and future prosperity. If we opt for the latter then we will have to make sacrifices now and tread the right path.

The phenomenon of frequent increases in the petroleum products can only be effectively tackled through lesser oil imports, reliance on increasing indigenous oil production and switch to alternate indigenous sources of electricity production, like coal and renewable energy resources. The present energy crisis and the need for frequent enhancement in the prices of petroleum products is a sequel to the wrong energy policies of the previous regimes. The energy produced with imported oil represented 64 percent of the energy production mix as against 16-20 percent global ratio. The present government is trying to change that equation and has rightly decided to switch the present oil based electricity producing units to coal based entities and install more and more coal based energy producing projects for the future needs. That will surely reduce oil imports to a great extent and the need for frequent raise in the prices of petroleum products besides production of cheap electricity.

The writer is a freelance columnist.